IRS Penalty Abatement: First-Time Abatement, Reasonable Cause, and How to Get Penalties Removed

By Yarik Yarosh, CPA ·September 5, 2026 ·8 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

IRS penalties are not permanent. The tax code, IRS regulations, and the Internal Revenue Manual (IRM) provide several paths to get penalties reduced or eliminated entirely, and the success rate for well-documented requests is higher than most taxpayers realize. The two primary mechanisms are first-time penalty abatement (FTA), which is an administrative waiver that requires no specific excuse, and reasonable cause abatement under IRC 6651(a), which removes penalties when the taxpayer demonstrates the failure was due to circumstances beyond their control. FTA is the easier path: if you have a clean compliance history (no penalties in the prior 3 years, all returns filed, all taxes paid or on a payment plan), the IRS will remove the failure-to-file, failure-to-pay, or failure-to-deposit penalty for one tax period, no questions asked. You can request it with a phone call. Reasonable cause requires more documentation but covers a wider range of situations and can be used even without a clean compliance history.

✓Key takeaway

IRS penalty abatement options:

Type	Requirements	Penalties Covered	How to Request
First-time penalty abatement (FTA)	Clean compliance for prior 3 years	Failure-to-file, failure-to-pay, failure-to-deposit	Phone call, letter, or Form 843
Reasonable cause	Circumstances beyond taxpayer’s control + ordinary business care	Most civil penalties	Letter with documentation or Form 843
Statutory exception	Meet specific code exception criteria	Specific penalties with statutory exceptions	Letter or Form 843
IRS error	Penalty caused by incorrect IRS written advice	Any penalty caused by the error	Letter referencing the advice
Correction during exam	Corrected within exam period	Accuracy-related penalties if corrected	During audit

FTA eligibility requirements (IRM 20.1.1.3.6.1):

Requirement	Details
No penalties in prior 3 tax years	For the same type of return (individual, business, employment)
All required returns filed (or valid extension)	Can’t have unfiled returns
All taxes paid or on an approved payment plan	Current on all payment obligations
Not previously received FTA for same period	One-time relief per tax period

Common IRS penalties and rates:

Penalty	Rate	Maximum
Failure to file (IRC 6651(a)(1))	5%/month of unpaid tax	25%
Failure to pay (IRC 6651(a)(2))	0.5%/month of unpaid tax	25%
Failure to deposit (IRC 6656)	2-15% depending on lateness	15%
Accuracy-related (IRC 6662)	20% of underpayment	20% (40% for gross valuation misstatement)
Estimated tax penalty (IRC 6654/6655)	Interest-based (not abatable through FTA)	Variable
Information return penalty (IRC 6721/6722)	$60-$310 per return	$630 intentional disregard

How do you get IRS penalties removed?

Hypothetical example

Round numbers. For current guidance, see IRS penalty relief information. A small business owner filed their 2024 individual return 4 months late (September 15 instead of the April 15 extended deadline) with a $50,000 balance due. The IRS assessed the following penalties:

Penalties assessed:

Penalty	Calculation	Amount
Failure to file (5%/month x 4 months, capped interaction with FTP)	$50,000 x 4.5% x 4 months	$9,000
Failure to pay (0.5%/month x 4 months)	$50,000 x 0.5% x 4 months	$1,000
Interest (not a penalty, cannot be abated except in rare circumstances)	$50,000 x ~8% x 4/12	$1,333
Total penalties + interest		$11,333

Option 1: First-time penalty abatement (FTA)

Checking eligibility:

FTA Requirement	Taxpayer’s Situation	Met?
No penalties in 2021 tax year	No penalties	Yes
No penalties in 2022 tax year	No penalties	Yes
No penalties in 2023 tax year	No penalties	Yes
All required returns filed	All filed	Yes
All taxes paid or on payment plan	Paid the $50,000 with the late return	Yes

FTA request (by phone call to IRS):

Item	Result
Failure-to-file penalty abated	$9,000 removed
Failure-to-pay penalty abated	$1,000 removed
Interest	NOT abated ($1,333 remains, interest can’t be abated through FTA)
Total savings	$10,000

The phone call takes 15-30 minutes. Call (800) 829-1040 (individuals) or (800) 829-4933 (businesses). Tell the representative you are requesting first-time penalty abatement under IRM 20.1.1.3.6.1.

Option 2: Reasonable cause abatement

If FTA isn’t available (penalties in the prior 3 years), reasonable cause is the alternative. Accepted reasons (per IRM 20.1.1.3):

Reasonable Cause Category	Examples
Death, serious illness, or incapacitation	Taxpayer or immediate family member hospitalized; mental health crisis
Fire, casualty, natural disaster, or other disturbance	Hurricane, tornado, flood, fire destroyed records
Inability to obtain records	Records held by third party who would not release them
Reliance on tax professional	Gave complete and accurate information to a competent CPA/EA who failed to file or advise correctly
IRS system issues	IRS website outage during filing period; delayed processing
Ignorance of the law (limited)	New business owner unaware of filing requirement (weaker argument, but sometimes accepted)
Erroneous IRS advice	Written or oral advice from IRS that was incorrect

Reasonable cause letter structure:

Section	Content
1. Identification	Name, SSN/EIN, tax period, penalty type, notice number
2. Facts	What happened (specific dates, events, circumstances)
3. Ordinary business care	What steps you took to comply (hired a CPA, set up payment plan, etc.)
4. Circumstances beyond control	Why the failure occurred despite your efforts
5. Supporting documentation	Medical records, insurance claims, fire reports, professional correspondence
6. Request	Specific request to abate penalty under IRC 6651(a)

Example reasonable cause scenario: The business owner was hospitalized for emergency surgery on March 25 and was incapacitated through May 15, missing the April 15 filing deadline.

Documentation to Include
Hospital admission records (dates of stay)	Shows incapacitation during filing period
Doctor’s letter stating inability to manage affairs	Corroborates inability to file
Evidence of prompt filing after recovery (filed May 20)	Shows ordinary business care
Prior compliance history (timely filings in prior years)	Supports pattern of compliance

Requesting abatement (methods):

Method	Best For	Processing Time
Phone call (IRS helpline)	FTA only; simple cases	Immediate decision
Letter to IRS Service Center	Reasonable cause; complex cases	30-90 days
Form 843 (Claim for Refund and Request for Abatement)	Formal request; any abatement type	30-90 days
Response to CP2000 or penalty notice	When penalty is newly assessed	30-60 days
During audit or examination	Accuracy-related penalties	During exam process

If the first request is denied:

Step	Action
1	Request reconsideration (new facts or better documentation)
2	Contact Taxpayer Advocate Service (Form 911) if hardship exists
3	File Form 843 if initial request was by phone
4	Request a conference with IRS Appeals (if penalty > $2,500)
5	Petition Tax Court (for certain assessed penalties)
6	File refund claim and sue in District Court or Court of Federal Claims

Estimated tax penalty (IRC 6654/6655):

Important	Details
NOT eligible for FTA	The estimated tax penalty isn’t covered by first-time abatement
NOT eligible for reasonable cause (individuals)	IRC 6654 provides no reasonable cause exception for individuals (with limited exceptions)
Exceptions that DO apply	Casualty, disaster, or unusual circumstances (IRC 6654(e)(3)); retirement after age 62; disability
Business estimated tax (IRC 6655)	Reasonable cause IS available for corporations

Penalty stacking awareness:

Scenario	Combined Penalty Rate
Filed 5+ months late, never paid	Failure to file (25%) + Failure to pay (25%) = 47.5% of tax owed (plus interest)
Filed on time, never paid for 50 months	Failure to pay (25% cap) + interest (~40% over 50 months at 8%) = 65%+ of original balance

The failure-to-file penalty is 10 times larger than the failure-to-pay penalty per month (5% vs. 0.5%). If you can’t pay, always FILE ON TIME and request a payment plan.

Illustrative numbers only, not a real client and not advice for your facts.

What options are available if I can’t pay my tax bill in full?

The IRS offers several payment alternatives. An installment agreement (Form 9465) lets you pay over time, with guaranteed approval for balances under $10,000 if you can pay within 3 years, and streamlined approval for balances under $50,000 payable within 72 months. An Offer in Compromise (Form 656) settles the debt for less than owed, but the IRS accepts only about one-third of applications because you must prove you can’t pay the full amount through income or assets. Currently Not Collectible (CNC) status suspends collection when you demonstrate that paying would create financial hardship, though interest and penalties continue accruing. Penalty abatement (first-time or reasonable cause) can reduce the amount owed by removing failure-to-file and failure-to-pay penalties, which often constitute 25-47% of the balance. Interest is charged on all unpaid balances and generally cannot be abated, which makes resolving tax debt sooner always less expensive.

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Cite this page

Yarik Yarosh, CPA. "IRS Penalty Abatement: First-Time Abatement, Reasonable Cause, and How to Get Penalties Removed." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-irs-penalty-abatement-reasonable-cause-fta

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.

IRS Penalty Abatement: First-Time Abatement, Reasonable Cause, and How to Get Penalties Removed

How do you get IRS penalties removed?

What options are available if I can’t pay my tax bill in full?

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